Media-Financial Complex

CNBC decided to respond to the righteous Jon Stewart rant against them on a Friday so he couldn't talk about it on that night's show. Their claim is that Stewart is "bizarrely obsessed" with their network, and Stewart was repeatedly calling Rick Santelli to come on the show. That's, um, called BOOKING A GUEST. Maybe CNBC doesn't do much of that, they just have a "CEO room" in Manhattan and just put the camera on whoever shows up there. It's not like they ask much of a variance of questions: "How great is your company doing? Is it awesome to be rich?"

Meanwhile, the network and other right-wing market populists continue to push the idea that Obama is responsible for the Dow's fall since Inauguration Day. I guess the business climate and the job loss has nothing to do with it.

The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W.'s watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.

Second, it's inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins "stress-testing" the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.

Finally, none of the financial wizards who are now charging Obama with leading America into the abyss have offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.

Obviously, Wall Street rage is aimed at getting the biggest banks paid off and the shareholders made whole so that only taxpayers will bear the burden of the collapse. There may be a very good reason, however, for outlets like CNBC, in particular Jim Cramer, to claim that Obama is responsible for the fall of the market. It deflects the blame from themselves. The story of Deep Capture is epic and needs to be read in full by the investigators who followed it for years to really understand. But TocqueDeville at Daily Kos does a pretty decent summarizing job.

This rabbit hole involves the thugs surrounding Jim Cramer and some of the top financial "journalists" from the New York Times, WSJ, Fortune magazine and BusinessWeek, top hedge funds, the Mafia, and the DTCC. It also includes "blackmail, smear campaigns, espionage, fraud, harassment, extortion, bribery, rumor-mongering, sabotage, off-shore money laundering, political cronyism, frivolous lawsuits, witness tampering, biased financial research, false identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery, wiretapping, counterfeiting, collusion, lying, cheating, threats and theft."

And if that wasn't fun enough, it may be the underlying story of what collapsed the entire, global banking system or at least served as the catalyst for the collapse.

We're talking about financial journalists using the power of their megaphone to trash a stock, or even tout it at the last minute, and then, through naked short-selling, earn millions while destroying public companies. And Jim Cramer is perhaps the greatest offender.

I have analyzed well over a thousand stories written by this clique of journalists. The vast majority of them were sourced from a small group of short-sellers who are also friends of Cramer. Other popular sources for this group of journalists include convicted felons, mobsters, dubious private investigators, crooked lawyers, hired stock bashers, and gun-toting goons - most of whom are tied to the Cramer constellation of short-sellers.

Some of the stories written by these reporters are accurate enough. But many are not. The journalists misconstrue data with seemingly purposeful intent. They exaggerate and obfuscate. They publish innuendo or merely repeat, Deus Optimus Maximus, the words of their hedge fund and criminal friends. A single negative story by one of these reporter-thugs can send a company’s stock tumbling by more than 50% — pure profit for their hedge fund sources, who of course sell the company short (often right before the articles are published). Meanwhile, an overwhelming majority of the companies targeted by these journalists will also be the victims of phantom stock selling and other shenanigans. The journalists do not mention this in their stories, and in fact go out of their way to deny that phantom stock exists.

Anyone who says otherwise is subjected to a vicious media smear.

It doesn't take much these days to persuade you that anyone on Wall Street is a crook. But Mark Mitchell had the goods. Cramer understood the value of information, like any inside trader. Then he got the power, through his own TV show, to control that information. And the method that Cramer and his cronies apparently preferred, naked short-selling, has been brought up as a possible culprit in the fall of Bear Stearns. Sen. Jon Tester even brought it up in a hearing with then-SEC chair Christopher Cox in April 2008.

This financial meltdown isn't entirely due to the people who made money on the way down. But the corroded relationship between the Masters of the Universe and the subjects who cover them - the Media-Financial Complex - is absolutely a part of this tale. And the phantom stock - invented wealth that can appear and disappear - is just another of the exotic financial instruments created by people who push paper and add zeroes to their balance sheets and call it work, paper and securities that are then leveraged and bet upon and sliced and diced until nobody understands them and just doesn't want to get left holding them when the organ stops playing and the big dance ends.

Read the story of Deep Capture. It's a through-the-looking-glass experience. Anyway, I can think of a guest for Stewart's next show...

All Cox' Fault?

Looks like the GOP has found a scapegoat for the financial meltdown. John McCain said today that he would fire Chris Cox as the chairman of the SEC. Now, Presidents don't have the power to do that, but clearly that showed a lack of trust in Cox on the part of the Republican nominee, and now CNBC is reporting (no link) that Cox will resign at the end of President Bush's term. In a way, McCain got what he wanted. And expect lots of articles about how lax SEC oversight was the proximate cause of this mess.

But how true is that? McCain tried to lay the blame at Cox' feet for the practice of naked short selling, which is when you can bet on a stock to go down without owning it, sort of like playing the ponies without owning the horse. This isn't exactly the best thing for the market, and Andrew Cuomo is launching an investigation to see if it's fully compliant with current law.

New York on Thursday began a probe into possible illegal short-selling in the stocks of Wall Street companies such as Goldman Sachs Group Inc and Morgan Stanley, Attorney General Andrew Cuomo said.

Cuomo said on a conference call with reporters: "I want the short-sellers to know today that I am watching. If it is proper and legal then there is nothing to worry about." [...]

The New York State prosecutor said his office also would look back into illegal short-selling that may have occurred in stocks of Lehman Brothers Holdings Inc and American International Group Inc, two companies at the heart of the crisis.

In the past week, Lehman has gone bankrupt and the insurance giant was rescued by the U.S. government.

Cuomo has asked the SEC for a freeze on short-selling.

But to suggest that this is why the markets are in turmoil is crazy. It's like blaming the guys betting on the horse for the horse carrying 200 extra pounds and stumbling to the finish line. The banks lent money to people who couldn't pay them back, and then hid the debt in all sorts of tricky new assets and securities that they tried to shovel out the door. That's the main problem, and no change in short-selling would alter that. The other problem is leverage, which may or may not be the SEC's fault.

As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind.

Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

You can credibly charge Cox with failing to conduct meaningful oversight and indeed encourage over-leveraging, but that's not what McCain said.

He talked about short selling, which is perfectly legal, thanks to the masters of the universe like Phil Gramm, who encouraged and supported the casino-like atmosphere on Wall Street that led to this mess.

If you want to know what happened to blow up the financial markets, it's relatively simple. The banks let anyone buy a house, securitized the mortgages, and over-speculated and over-leveraged themselves, so that investors were buying worthless pieces of paper that they thought were valuable. The fixes are also simple:

Reform One: If it Quacks Like a Bank, Regulate it Like a Bank. Barack Obama said it well in his historic speech on the financial emergency last March 27 in New York. "We need to regulate financial institutions for what they do, not what they are." Increasingly, different kinds of financial firms do the same kinds of things, and they are all capable of infusing toxic products into the nation's financial bloodstream. That's why Treasury Secretary Hank Paulson has had to extend the government's financial safety net to all kinds of large financial firms like A.I.G. that have no technical right to the aid and no regulation to keep them from taking outlandish risks. Going forward, all financial firms that buy and sell products in money markets need the same regulation and examination. That will be the essence of the 2009 version of the Glass-Steagall Act.

Reform Two: Limit Leverage. At the very heart of the financial meltdown was extreme speculation with esoteric financial securities, using astronomical rates of leverage. Commercial banks are limited to something like 10 to one, or less, depending on their conditions. These leverage limits need to be extended to all financial players, as part of the same 2009 banking reform.

Reform Three: Police Conflicts of Interest. The conflicts of interest at the core of bond-raising agencies are only one of the conflicts that have been permitted to pervade financial markets. Bond-rating agencies should probably become public institutions. Other conflicts of interest should be made explicitly illegal. Yes, financial markets keep "innovating." But some innovations are good, and some are abusive subterfuges. And if regulators who actually believe in regulation are empowered to examine all financial institutions, they can issue cease-and-desist orders when they encounter dangerous conflicts.

The SEC could have handled reform 2, but that's about it. There are also reforms that we can do to ensure that people stay in their homes, which would be novel, protecting ordinary people instead of the executives who caused this. AND, we could actually tax hedge fund managers on their income the way we do any other income-generating American, increasing federal revenue and having the people at least somewhat responsible for this mess partially finance the bailouts, as they are no longer creating public wealth.

This remains a scary time. China could decide that holding US dollars doesn't make any sense and divest, which would lead to what Michael Bloomberg has called a next wave crisis.

But you'll see that short-selling, which actually doesn't affect the market as much as claimed, because on the way down you have to buy the stock to cover the sale, isn't on anyone's reform list. The bottom line is that simple regulation that is actually implemented is much cheaper and more efficient than bailing out everyone on Wall Street with phantom money that is just created out of thin air and ends up becoming debt for our children and grandchildren. John McCain is out of touch with what is needed to soothe the markets, but it sounds manly to "strike forth" and fire a guy you decide is responsible. The responsibility lies with Republican love of deregulation, not any one person. You can scapegoat Chris Cox all you want, but it's a smokescreen.

...funny, too, how McCain can stand up to Chris Cox but not George Bush.

In private late Tuesday evening, the McCain campaign circulated a draft statement on the Wall Street crisis that attacked the Bush administration for a slow and "inconsistent" response, and charged that executives at several financial firms had made "misleading and false" statements.

But the criticism never appeared. After being circulated not only among McCain aides but also major campaign donors who have worked in the investment industry, the language was softened.